Foreign Market Determine Which Institutional and Risk Essay
- Length: 6 pages
- Sources: 3
- Subject: Business
- Type: Essay
- Paper: #21417696
Excerpt from Essay :
Determine which institutional and risk factors must be considered and whether they support entry or not.
The company needs to evaluate critically the risks and institutional factors before deciding on entering the foreign market. The institutional and risk factors must be relevant to the ambitions and expectations of the company. Institutional factors constitute three principal aspects. The first aspect of institutional factors is the political institutions for instance the nature of policymaking, regulations, and adjudications in the foreign market. The company intending to enter the foreign market must ensure that the political institutions support its mission and vision in the process of exploiting the scarce resources within the economy (Baek, 2011). The second institutional factor is the economic situation of the foreign country. Economic nature of the nation would be in the form of structure of the national factor markets and accessibility of the international factors of production. The third aspect of international factor is the social-cultural institutions for instance the informal norms or regulations.
In order to maximize the business effectively opportunities in the new environment, the company seeking to enter the foreign market must be ready to tolerate the differences in the new and the previous settings. This is because; there is considerable variation in the laws and regulations, in relation to the acquisition of property, registration of new businesses, development or recruitment of the workforce, importation of production factors, exportation of output and capital, contractual concepts, taxation criteria, licensing process, and feasibility of exit. It is also crucial for the company to evaluate the competitive level of the new market and potential customers or audience in relation to the production lines. Some of the relevant risk factors of entry into new market environment might include trade tariffs or barriers, information of localization, price determination, and subsidies relevant to exportation process. Cameron International Corporation must consider if the institutional and risk factors above support its interest into involvement in the new market (Seyoum, 2011).
Conduct a VRIO analysis to determine whether entry is supported
VRIO framework represents effective and efficient tool to evaluate or examine the internal environment or position of the company. VRIO seeks to answer four relevant questions concerning the internal environment of the company. The first question of the VRIO is in relation to Value. Under this examination, the company examines if the resources available at its disposal have the capacity to exploit opportunities in the new or foreign market. The second question is a rarity of the resources. The question seeks to address the percentage of the number of competing firms controlling the scarce resources. The third question is imitation. The question seeks to answer notion of existence of cost disadvantage in the acquisition or development of the resources of production activities. The last question is organization. The question seeks to examine if the policies and procedures of the firm are capable of exploiting the valuable and scarce resources within the market (Chris, 2006).
Factors of VRIO
Status VRIO Questions
Expectation of the Firm
Question of Value
Partial Competitive Advantage
Question of Rarity
Question of Imitation
Not Costly to Imitate
Question of Organization
Application of the valuable resources, minimal cost to imitate, effective and efficient organizational concepts, and presence of rarity of production resources indicate that the company can enter into the new market and sustain significant exploitation of the new environment. Sustainability of the new market would depend considerably on the organization of the activities of the company effectively. In the examination of the VRIO, Cameron International Corporation scores effectively in relation to financial status of the firm. The revenue and profit levels are valuable hence supplementing the human capital within the organization. Although the resources in the new market are in the hands of few individuals, the company can obtain competitive advantage through proper and applicable business organization. This might in the form of forming alliances with the resource owners or concentrating on the quality services and products to consumers. This would make the company to maintain the global consumers while attracting the potential clients in the new market environment. Extensive application of the company's strategy would indicate that the revenue and profit levels of the firm would increase while realizing reduction in the overall cost of production.
Assess existing cultural issues to determine how they should be addressed should the company enter the market.
Cameron International Corporation entry into the new market should focus on how to address the cultural differences or issues within the business environment. Myanmar market environment faces inefficiency cultural issues in meeting the needs and requirements of the consumers within the market. In order to address inefficiency in the operations of Cameron International Corporation in the new market, it is necessary to adopt the use of lean concepts and techniques. This would improve the standards of products and services aiming to satisfy the needs of consumers. This would allow the company to minimize elements of error within its operations hence improvement of the quality of products and services.
Cameron International Corporation needs to address the corrupt cultural behavior in the new market environment. Myanmar business environment experiences corruption on different levels such as contractual concepts, exportation, and importation deals. Cameron International Corporation needs to promote genuine transactions within the new market to eliminate corrupt practices within the market. Cameron International Corporation should conduct transparent business operations to overcome opaque cultural issue within the new market. It is essential to promote ethical practices in interacting with consumers. Cameron International Corporation should be ready to tolerate the difference between the old and the new market in order exploit the available in the Myanmar business environment.
Determine if the company should pursue FDI with potentially more risk and higher returns, or subcontract to provide component parts.
The company should pursue foreign direct invest (FDI) with potentially more risk and higher returns in the new business environment. This would allow the company to exploit the scarce resources of the new business environment while minimizing the cost of production and distribution of products and services to consumers. Cameron International Corporation has the capacity to development appropriate measures to curb the political, economic, and socio-cultural risks within the new market hence should adopt the FDI with potentially more risk and higher returns in relation to the size of investment. The capacity to curb the risks within the new market rests on the development of joint ventures with relevant organizations, application of the financial viability of the company, and utilization of the organizational strength. The company has a greater chance of improving its revenue and profit levels by adopting the direct and potentially risky entry into the new market. Cameron International Corporation can adopt four levels in assessing the risks to provide enough chance to eliminate or reduce them. The four stages include general instability, expropriation, operations, and financial risk levels. Adoption of joint venture as a way of elimination eliminating risks would allow the company to enhance the market coverage hence increase in the total revenue and profit levels. Adoption of joint venture would involve entering into sub-contractual relationship with relevant stakeholders. This makes it necessary for the Cameron International Corporation to adopt both direct entry with potential risks and subcontract approach. This would guarantee increment in the revenue levels in relation to the volume of sales and overall transactions of the company within the new market.
Recommend which joint venture partners the company should approach and for what percentage if the company decides to engage in FDI.
Joint venture represents a strategic alliance in which two or several business parties form a partnership concerning sharing or the market segment, intellectual property, assets, and profits. The only difference between joint venture and the merger is that there is no transfer of ownership in interactions of the former. Cameron International Corporation should focus on the formation of joint ventures with other companies in the same line of production. The aim of this type of joint venture is to reduce costs, losses, and risks in relation to the company in the process of penetrating the new market. Cameron International Corporation should be the principal shareholders in the form of joint venture. The percentage of the joint venture should be approximately 60% in order to enhance the profit levels of the company (Chung, 2011). Cameron International Corporation would have greater chances in eliminating the political, economic, and socio-cultural risks in association with foreign direct investment. The company would reap high levels of profits and revenue due to the aspect of being substantial shareholder in the agreement or joint venture. It is necessary for the company to enter into this joint venture because of the disparities between the new and the previous business environments. Achievement of appropriate joint venture would allow Cameron International Corporation to adapt effectively and efficiently in the new business environment. Adaptation of Cameron International Corporation is crucial to exploitation of the opportunities in the foreign market thus overall growth…